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(Not) Sense of Diversification in a Buy & Hold Portfolio


In my previous article on my preferred investment strategies, I gave you some color in my screening process and why I like a laser to focus on a few stocks that I believe are ready for market-heavy earnings are. In the last few months and months, I have been fortunate enough to analyze dozens of companies. However, as I followed too many stocks, I acquired undervalued stocks that did not necessarily meet my high quality requirements. That's why I decided to turn my portfolio around and prefer quality to undervaluation. Today, I believe that my fine-tuned portfolio balances growth, dividend and security.

Long-Term Performance

As you can see from the pie chart below, our core portfolio is currently diversified into 10 stocks, all of which have great long-term prospects, but their current valuation metrics are very different. If I have properly completed my due diligence and balanced the overall risk by selecting top stocks that are proven to produce excellent value (and I expect them to maintain that favorable status in the future), I am determined to keep those stocks for a very long time, even if market sentiment is depressed. Today, the following ten core positions form the basis for primarily attractive dividend flows and additional stock appreciation through multiple expansion:

(Source: Author's work)

Over the last few years, this stock basket has easily survived The S & P 500 (SPY), Russell 2000 (IWM), Dow Jones (DIA) and Eurostoxx 600 outperformed thanks to their amazing cash flow growth, smart acquisitions and below-average debt levels. In addition, they also outperformed dividend aristocrats such as Coca-Cola (KO), Kimberly-Clark (KMB), Abbott Laboratories (ABT) and so on.

(Source: Tradingview)

I am pretty sure that most of you tend to invest in more than 10 names and believe that this portfolio is more prone to strong market corrections. Hypothetically, this should be true, as it is primarily composed of smaller, family-controlled companies and therefore less liquid underlyings.

Now look in the rearview mirror to see if this statement is an option. I put this long-term portfolio to the test and was glad that most of my positions survived the December storm last year very well. The reason they can compete during the downturns may be the long-term property shared by many other shareholders who share the same opinion: just keep the stocks, ignore the noise and just look at the basics.

(Source: Tradingview)

More importantly, these stocks have a significantly lower beta compared to their benchmark index, which increases their attractiveness during the market corrections.

Name 3-year beta

5-year performance,

(excluding dividends)


of the first purchase

by Sioen Industries 0.81 [19659020] 178.9% April 2018
Ter Beke 0.25 134.8% June 2018
TINC 0.15 June 2018 [19659020] June 2018 [19659909] 19659019] 0.39 148.0% May 2018
Elia (OTC: ELIAF) 0.31 74.3% March 2018
Melex (OTC: MLXSF ) [19659] 19659019] 109.5% September 2018
VGP 0.20 290.2% November 2017
Warehouses of De Pauw (OTC: WDPSF) [19659020] 959.949; January 2018
Kinepolis [19659] 019] 0.66 71.3% March 2018
Moury Construct 0.13 41.0% February 2018 [AVERAGE 0,45

(Source: Infrontanalytics)

Industry Breakdown

Defiance the fact that our buy-and-hold portfolio is heavily concentrated on a few stocks we have deliberately focused on industries that have economic resilience and allow for secured dividends.

(Source: Author's work)

To delve even deeper into their activities, we discover the diverse end markets of these companies Let me go through their business models.

Elia is a transmission system operator with a monopoly in the Belgian market and plays a key role in other European markets such as Germany, where it holds a majority stake in 50Hertz. Elia remains a stable company that offers secured dividends while controlling the payout ratio to free capital for investment opportunities. Since the IPO, the company has never been forced to cut its dividend.

TINC focuses on investing in infrastructures that enable long-term sustainable cash flows. This company is viewed as a bond proxy stock. Management has a very long-term view of future cash flows.

[Source: Company Presentation]

Kinepolis is a cinematic group that wants to offer its audience the ultimate movie experience. Through several takeovers, Kinepolis has extended its traditional profile to a broader entertainment company. Two years ago, the company announced it would acquire Landmark Cinemas. Considering that Margin's margins remain one third of those of Kinepolis, this step should be the driving force for many years.

(Source: Valuespectrum)

Vehicle safety and automation are two areas that ] Melexis has worked for many years, and that is ultimately the only reason investors should look at this interesting technology company. By the end of September, the Melexis stock was trading at expensive multiples, but due to fears of a slowing global economy, the price level has become more acceptable.

Contractor Moury Construct proves that this may be a company's erroneous view that the construction industry does not offer buy-and-hold opportunities. Considering that today's market capitalization is at least 75% net cash, equities are lower multiples. In addition, Moury Construct will be able to increase its revenue to more than 100 million for the first time this year. This Bond Proxy stock provides opportunities for patients looking for boring and predictable dividend income.

The last are VGP and WDP which specialize in logistics real estate. While WDP is legally forced to pay out at least 80% of its annual net profit, VGP continues to recycle its capital invested in large projects through its joint venture with Allianz (OTCPK: ALIZF). By issuing bonds at attractive interest rates, both companies are focusing on growing their real estate portfolio in Eastern Europe, especially in Romania, where logistical property yields reach 8%. I expect that VGP will grow its dividend very quickly by combining new projects (and rental income) with a steadily rising payout ratio.

Since you can subtract from the pie chart, I have overweighted REITs due to massive returns. Industry has long been advancing. Most of them have risen by 20% since the beginning of the year, REITs are hot and there are definitely fewer opportunities to present themselves in high quality space. As long as its growth engine is running at full capacity and the multiples continue to be very reasonable, I plan to further expand my existing position at VGP.

(Source: Author's work)

Dividend Income

My parents and I hunt for solid and predictable dividend flows to ultimately live off our families. We have several income streams Categories created to classify our shares into equities, and have explicitly chosen to select dividend growth companies.

(Source: author's work)

Just to convey my point of view, these classifications have a personal interpretation. If the annual dividend growth rate can not keep up with the inflation rate and the gross dividend yield is above 3%, I think this is a "high dividend". Aside from selecting some of the dividend cannons, we have decades to go, so we should focus on growth companies for which fast-growing dividends are not a priority as they prefer to use their cash surplus to opportunistically hunt for takeovers. [19659080] By capitalizing on dividend growth stocks, I'd like to double our dividend payments over the next two years.

(Source: Author's work)

Dividend breakdown for 2019 is as follows:

(Source: Author's work)

On the way to this year's new dividend season, our dividend income is borne by three key players: VGP, TINC and Warehouses De Pauw. While TINC's dividend growth rate barely exceeds the Belgian inflation rate, VGP and WDP planned to increase their dividends by 15.6% and 7.0% respectively compared to the 2018 financial year. Ter Beke and Jensen have frozen their dividend over the past year, but are definitely in a position to repay their dividend impressive growth in dividend growth over the next two years.

(Source: Author's work)

The Perfect American Buy & Hold Stocks

The basic guidelines (such as dividend security, manageable leverage, attractive capital) are of course allocation, long-term visibility) I have implemented in my own Belgian portfolio and can also be used for American securities. If I had to put together a basket of the top 10 blue chip stocks for the next few years, I would have made the following selections:

Name FCF Yield Leverage (Net Debt / EBITDA) (s) 3-year beta
Broadcom (AVGO) 6.9% 1.9x 0.49
Apple (AAPL) Net cash position [19659020] 1.09
Altria (MO) 7.8% 1.9x 0.61
Comcast (CMCSA) 6.8% 3.4x [19659020] 3.42 (CSCO) 5.4% Net cash position 0.90
Johnson & Johnson (JNJ) 4.9% 1.5x 0.73
Simon Property (SPG) [19659019] P / FFO = 14.5 5.1x 0.42
3M (MMM) 4.0% 1.7x 1.19
Equinix (EQIX) P / FFO = 23.6 5.0x 0.48
Procter & Gamble (PG) [19659020] 4.3% 2.0x [19659020] 0.54

(Source: Information based on companies) Results and infront analytics)


Driven by a false sense of security, most investors tend to over-diversify the portfolio's overall risk. However, they increase their portfolio by unsystematic risks and unnecessary management work.

Contrary to this belief, I firmly believe in stock picking and that's why our buy-and-hold portfolio consists of "just" 10 cherry-picked stocks. From a long-term perspective, not only the volatility of the stock markets is important to me, but only the operational performance. Under the strict control of their founding families, it is very likely that these companies will not waste free cash flow, but the future dividend will secure payments. In the coming years, VGP will continue to play a key role in achieving our financial goals.

Disclosure: I am / have long been ALL of the Belgian stocks mentioned in this article. I wrote this article myself. and it expresses my own opinion. I can not get any compensation for it (except from Seeking Alpha). I have no business relationship with a company whose inventory is mentioned in this article.

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